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M/s. K.P.L. Oil Mills (P) Ltd., Represented By Its Managing Director, Thrissur District v/s Employees' State Insurance Corporation, Regional Office, Panchdeep Bhavan, Represented By Its Regional Director


Company & Directors' Information:- N K OIL MILLS PVT LTD [Active] CIN = U15201GJ1994PTC022669

Company & Directors' Information:- B P OIL MILLS LIMITED [Active] CIN = U15142UP1965PLC003232

Company & Directors' Information:- K P L OIL MILLS PRIVATE LIMITED [Active] CIN = U15142KL1983PTC003685

Company & Directors' Information:- N K B OIL MILLS PRIVATE LIMITED [Active] CIN = U15142KL1999PTC013095

Company & Directors' Information:- K K K OIL MILLS PRIVATE LIMITED [Strike Off] CIN = U15142KL2000PTC013621

Company & Directors' Information:- S N OIL MILLS PRIVATE LIMITED [Strike Off] CIN = U15142HR1986PTC025702

Company & Directors' Information:- G. B. OIL MILLS PRIVATE LIMITED [Strike Off] CIN = U15326HR1985PTC019817

Company & Directors' Information:- R. OIL MILLS PRIVATE LIMITED [Strike Off] CIN = U15141DL1992PTC047883

Company & Directors' Information:- J K OIL MILLS COMPANY LIMITED [Strike Off] CIN = U15143UP1955PLC002570

Company & Directors' Information:- N N OIL MILLS PRIVATE LIMITED [Strike Off] CIN = U15147MH1999PTC117989

Company & Directors' Information:- KPL (INDIA) PRIVATE LIMITED [Strike Off] CIN = U29191DL1997PTC090235

Company & Directors' Information:- J & T OIL MILLS PRIVATE LIMITED [Strike Off] CIN = U15141KL2006PTC019754

Company & Directors' Information:- A AND R OIL MILLS PVT LTD [Strike Off] CIN = U15315CH1994PTC014265

    Ins. APP. No. 6 of 2008

    Decided On, 21 March 2013

    At, High Court of Kerala

    By, THE HONOURABLE MR. JUSTICE S. SIRI JAGAN & THE HONOURABLE MR. JUSTICE BABU MATHEW P. JOSEPH

    For the Appellant: M.P. Ashok Kumar, Advocate. For the Respondent: Mrs. T.D. Rajalakshmy, SC, ESI. Corpn.



Judgment Text

S. Siri Jagan, J.

1. The applicant in I.C No.81/2005 before the employees Insurance Court, Palakkad, is the appellant herein. They are challenging the order of the E.I. Court, in that I.C. where three items of payments made by the applicant were held to be wages for the purpose of demanding contributions under the Employees State Insurance Act (`Act for short'). The Inspector of the Employees State Insurance Corporation inspected the premises of the appellant and found out that certain payments which actually come within the definition of 'wages' under the Act have not been taken into account for the purpose of paying contributions. In respect of the same a demand was issued to the appellant by the respondent directing payment of arrears of contribution in respect of the same. The appellant challenged the demand by filing the I.C. After considering the evidence adduced by the parties the E.I.Court, by the impugned judgment, upheld the demand. The appellant is challenging that judgment.

2. The dispute arises by the appellant relates to three items of payments, one is sales incentive paid to the employees. The second is wage element of packing contract and the third is City Compensatory Allowance paid to two of the employees. In respect of the sales incentive, the appellant took the contention that, the sales incentive does not form part of the wages, since the same was paid at intervals exceeding two months and therefore the same is taken out of the purview of definition of 'wages' and consequently, no contributions are payable in respect of such payments. As far as the wage element of payments made to the packing contractor is concerned, the appellant took the contention that the packing contractor is an independent contractor doing the packing work in a different premises, where the appellant did not have any control or supervision over the packing process and therefore, no contributions are payable in respect of wages paid by the packing contractor to his employees. As far as the City Compensatory Allowance is concerned, the contention is that the payment is for defraying special expenses entailed by the employees, by the nature of his employment and therefore, by virtue of Sub Clause (C) of Section 2(22) of the Act defining 'wages', the said payment is excluded from the definition of 'wages'. The arguments of the appellant did not find favour with the EI Court and EI Court found that all the payments come within the purview within wages as defined in Section 2(22) of the Act.

3. According to the appellant, the sales incentive is paid not pursuant to the terms of contract of employment between the appellant and their employees, either expressed or implied and has been paid at intervals not exceeding two months and therefore, the payment is clearly excluded from the purview of definition of 'wages' under the Act. As far as the wages paid to the employees of the packing contractor is concerned, the contention is that the appellant does not have any control over the packing of the materials, the same is done under a contract executed between the packer and appellant and the packing process is not supervised by the appellant. Therefore, the packing contractor does not come within the definition of 'immediate employer' under Section 2(13) of the Act. Consequently, the appellant is not liable to pay contributions in respect of the wages paid by the contractor to his employees is the contention.

4. As far as the City compensatory Allowance is concerned, it is submitted that the same is paid to the employees to defray a special expenditure entailed on account of the nature of their employment and therefore the same is not included in the definition of 'wages'.

5. The counsel for the respondent Employees Insurance Corporation is not present to defend the appeal.

6. We have considered the case on the basis of the records available in this case.

7. We shall first deal with the question of liability of the appellant to pay contributions in respect of the sales incentive paid to their employees. As we have already stated the contention of the appellant is that, the same is additional remuneration paid at intervals exceeding two months and therefore it is out of the purview of the definition of wages. Section 2(22) of the Act defines wages thus:

"wages" means all remuneration paid or payable in cash to an employee, if the terms of the contract of employment, express or implied, were fulfilled and includes (any payment to an employee in respect of any period of authorised leave, lock out, strike which is not illegal or lay off and) other additional remuneration, if any, (paid at intervals not exceeding two months), but does not include-

a) any contribution paid by the employer to any pension fund or provident fund, or under this Act;

b) any 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 discharge;

The liability to pay contributions on production incentive paid to employees by employers was the subject matter of decisions of the Supreme Court in several cases. The most important of them are Wellman India Private Ltd. V. Insurance Corporation [1994 (I) LLJ 545] and Whirlpool India Ltd. Vs. ECIC [2000 (I) LLJ 1101]. In those decisions, the Supreme Court has specifically held that the definition of wages have two parts. The first part comprises of remuneration paid or payable in cash to an employee, if the terms of the contract of employment express or implied were fulfilled, in respect of which the intervals of payment is not applicable, for the purpose of deciding whether the contributions are payable in respect of the same. The second is additional remuneration paid at intervals not exceeding two months. Only if the additional remuneration is paid not in terms of the contract of employment at intervals not exceeding two months, the payment would be taken out of the purview of the definition. Therefore, the appellant should essentially prove before us that the sales incentive paid to their employees does not form part of the remuneration paid or payable in cash to an employee, if the terms of the contract of employment express or implied were fulfilled. For that essentially the appellant should produce evidence to show the nature of payment, namely as to whether the same is as per an agreement between the employer and the employees or it is a unilateral payment made by the employer to the employees without any contract between them in respect of payment thereof. Of course, in ESI Corporation V. EVI Industries [2005 (4) KLT 539] after considering various decisions on the subject, a Division Bench of this Court has held that incentive payments voluntarily paid by the employer at three months intervals is not 'wages' as defined in the Act. Of course, the appellant claims that in this case, the payment is made at intervals of beyond two months and therefore the payment will not come within the purview of wages. But the appellant will have to further prove that, it is not a remuneration paid or payable in cash to an employee if terms of the contract of employment express or implied were fulfilled. The appellant has not chosen to lead evidence as to the nature of such payment. The appellant has not proved that it is not a remuneration paid or payable in cash if the terms of the contract of employment express or implied were fulfilled. They have not chosen to lead evidence to show that it was a voluntary payment made by the appellant to their employees in more than two months' intervals. In fact, the appellant themselves admitted the payment as wages for the period 2000-01 and paid contribution in respect of the same. It is for subsequent periods that the appellant raised the present contention. That itself shows the hollowness of the contention of the appellant. In the above circumstances we have no hesitation to hold that the appellant has not proved that the payment was a voluntary payment made by the employer at three months intervals. In the absence of any proof to that effect it has to be assumed that the payment is remuneration paid or payable in cash to the employees, for the fulfillment of the terms of contract of employment express or implied. Consequently the same will come within the purview of the definition of 'wages'. Therefore, the appellant is liable to pay contributions in respect of the same. Resultantly, we do not find any infirmity in the finding of the EI court in respect of the same.

8. The second contention is regarding the wage element of packing contract. As we have already stated, the contention of the appellant is that the appellant does not have any control whatsoever, over the employees employed by the packing contractor, who is an independent contractor not working inside the premises of the appellant and therefore the appellant is not liable to pay contributions on the wages paid by the packing contractor to his employees. The place, where the packing of the materials of the appellant is being done by the contractor is not within the premise of the factory of the appellant. But it is proved that it is in a premises, where the godown of the appellant is also situated. Both the godown and the packing place are in the same premises and electricity connection for both is the same. The electricity charges for both is being paid by the appellant. Of course, the appellant has got a contention that it is reimbursed by the packing contractor as per the contract executed. But it is a fact that at the first instance it is the appellant who pays the electricity charges and the godown of the appellant is also situated in the same premises. It is also in evidence that the packing work executed by the packing contractor is part of the business of the appellant themselves insofar as the oil manufactured by the appellant is being packed by the packing contractor. The witness of the Corporation had given evidence that he had verified the lease deed and that the packing machinery in the packing place, were installed by the applicant themselves and there was provision for reimbursement of remuneration, rent and remittance of electricity charge by the applicant. Of course, the counsel for the appellant disputes the same. But there is such a finding in the judgment.

9. Apart from that in the judgment itself, the terms of the packing contract are narrated clauses 11,16 and 17 of which reads thus:

"11. The packer shall ensure that no foreign materials other than those stipulated in Schedule 1 are placed in the cartons.

16. The Packer shall return to the company the damaged packing materials, if any, and shall obtain acknowledgment from the officers concerned.

17. The persons employed/engaged by the Packer shall wear identification badges at all the times when they are in the premises."

The contention of the appellant is that the appellant does not have any supervision over the packing process. But we are of opinion that the appellant cannot ensure the compliance with the above three clauses without supervision. It is not the case of the appellant that after the materials are packed, the appellant would again inspect the packed materials to see that the above conditions of the contract have been fulfilled. If that be so, it is anybody's guess as to how the appellant ensures that no foreign materials, other than those stipulated in schedule 1 of the contract are placed in the cartons. Likewise, without supervision, the appellant cannot ensure that the persons employed or engaged by the packing contractor do not commit any pilferage of the company's materials as contemplated by clause 16. The same is the case in respect of Clause 17 also. The appellant can ensure that the employees engaged by the packer wears identification badges at all times, only if they supervise the work of those persons.

10. Therefore, the terms of the contract themselves spell out a clear case of supervision. Therefore, despite the protestations of the counsel for the appellant, the inevitable inference from the clauses of the contract itself is that the appellant is actually supervising the work of the packing contractor. That being so, in view of the definition of 'immediate employer' in Section 2(13) of the Act, the appellant is liable to pay the contributions in respect of the employees of the contractor in the first instance, as required under Section 40 of the Employees State Insurance Act. Of course, it would be open to the appellant to recover the same from the packing contractor, if the appellant so wishes. In the above circumstances we do not find any infirmity in the findings of the EI court in respect of the wage element of the packing contract as well.

11. As far as the City Compensatory Allowance is con

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cerned, in order to bring the same within Sub clause (C) of Section 2(22) the appellant will have to prove that the City Compensatory Allowance is a sum paid to the employee to defray special expenses entailed on by him by the nature of his employment. The contention of the appellant is that City Compensatory Allowance is paid to two employees, because they are posted in cities. And therefore it is a payment for defraying a special expenses entailed on the employees, taking the same outside the purview of wages as defined in Section 2(22). But we are of opinion that in order to take City Compensatory Allowance out of the definition of 'wages', the appellant has to prove that the same is paid to defray special expenses entailed on him by the nature of his employment and not by the nature of the place of posting . The appellant does not have a case that it is because of the peculiar nature of the employment of the two employees that this allowance is paid. But the very contention is that, it is because of the place of employment that the amount is paid. Therefore, the same does not come within Clause (C) of Section 2(22), so as to take the same outside the purview of the definition of 'wages'. Therefore, we do not find any merit in the contention of the appellant in respect of the same also. In view of the above findings, we do not find any merit in the contentions of the appellant. Accordingly the appeal is dismissed.
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